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The Weekly Rap! Friday Dec 14, 2012

The Dow is currently trading at 12,553 higher by 609 pts compared with last Friday. That’s a gain of over 1,600 points in just three weeks. The S&P 500 is also trading higher at 1,416. Gold is trading at $1,698 an ounce, while oil futures at $86.60 a barrel. Gas prices, (Regular in El Dorado Hills, Costco, AM/PM), are at $3.30/Gal.

Yields on 10-year Treasury notes, which move inversely to prices, are trading at 1.70%. 30-year Treasury Bond yields are trading at 2.86%. The MBS (Mortgage Backed Security) FNMA 30-year fixed 3.0% coupon, containing 3.25-3.625% mortgages, pretty much the benchmark or how rate sheets are priced these days, is about 75% of the over-all production. This security is currently at 104.65 about 1.00% lower in price (higher rates) but still trading in a tight range. Basically each percent change in the price of the security translates to the price (or points paid or credited) of the mortgage rate.

In economic news this week; I mentioned last week that most of the economic news that pertains to post-election should have a “fiscal cliff” asterisk next to it due to the fact that the amount of uncertainty surrounding the possible outcomes is weighing on the decisions of just about every company out there no matter what they produce.

An index from the National Federation of Independent Business that tracks sentiment among small firms fell post election 5.6 points at 87.5. The survey found that 49% of small-business owners expect future business conditions to be worse than current conditions. In October, a record percentage of owners were uncertain about the outlook, and it appears that many became decidedly negative in November. Apparently, many believe that Washington does not have the needs of small business in mind. Between the looming ‘fiscal cliff,’ the promise of higher health-care costs and the endless onslaught of new regulation, owners have found themselves in a state of pessimism. I would really be interested in your feedback on this. Our company has had to cancel our group life insurance and long term care insurance due to the looming “Obama-Care” that we now know will be implemented.

The big news this week was the Fed meeting on Wednesday. The Fed, in a major move, set out new benchmarks for the first time on the level of unemployment and inflation that must be in place before it would contemplate higher interest rates. They also announced a new $45 billion bond-buying program in fresh action to keep the recovery going in the languishing jobs market. Fed Chairman Ben Bernanke and his colleagues agreed, for the first time, they would hold rates close to zero while the unemployment rate is above 6.5% as long as inflation is not projected to rise above 2.5%. Longer-term inflation expectations must be well-anchored, the Fed said. They have previously said they expected to hold rates steady until mid-2015.

Bernanke noted that, at the moment, five million people, or more than 40% of the unemployed, have been out of work for six months or more. “The conditions now prevailing in the job market represent an enormous waste of human economic potential,” Bernanke said. The Fed also kept its existing program to buy $40 billion a month in mortgage-backed securities which is helping to keep mortgage rates at record low levels.

U.S. economic growth has been lackluster, with so-so consumer spending, lukewarm hiring trends and tepid business investment. The economy is expected to slow to 1.9% in 2013 from 2.2% this year, according to the November survey of Blue Chip Economic Indicators. Looming over the outlook are tense negotiations over tax-and-spending policies, the so-called fiscal cliff.

American consumers didn’t go shopping much in October, but they made up for it in November. Retail sales rose a modest 0.3% last month after declining 0.3% in October. Then again we did have Black Friday, or should I say Black Thanksgiving. But don’t get me started on that one. I was left alone on thanksgiving night while the rest of the family went shopping.

We paid less for goods and services in November, mainly because of the falling cost of gas. The Consumer Price Index dropped 0.3% last month. Excluding food and energy, core consumer prices edged up 0.1% in November. The core number is closely followed by investors and the Fed as it is seen to be a better predictor of future inflation. A low rate of inflation also allows the Fed to continue its policy of buying government and mortgage-related debt in an effort to drive down interest rates for the purchase of homes, cars and other consumer goods.

If you know anyone who can benefit from my services, please call me. My greatest goal is to see clients and friends happy. I guess that’s why I love providing mortgage financing. It’s an immediate gratification when you can help someone purchase a home, or lower their payment on their existing home.